Once in high demand, North Dakota oil-by-rail shunned on East Coast

Mon Jan 25, 2016 11:59am EST
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By Jarrett Renshaw

NEW YORK (Reuters) - In 2012, Plains All American bought a shuttered Virginia refinery for $300 million to use as a terminal and storage hub, betting that East Coast refiners would need to look beyond their own rail yards to satisfy their thirst for cut-price inland crude in coming years.

Instead, shale production from North Dakota has been shrinking and those refiners have resumed buying imported crude. The 140,000 barrel-per-day rail terminal at Yorktown, Virginia has been sitting idle, according to two sources familiar with its operations.

The most recent weekly report from energy industry intelligence service Genscape reported no traffic at the facility, which the sources said was expected to remain dormant through next month. Refiners have been booking an armada of vessels to carry North Sea and West African crude to U.S. shores, the biggest import binge in years that will all but displace Bakken shale.

Spot shipments of crude by rail have all but vanished. Rail car lease rates have slumped to half what they were a year ago and oil-by-rail traffic has dropped 17 percent in the first few weeks of 2016, according to the latest data from the Association of American Railroads.

Rail car traffic at the Eddystone rail facility outside Philadelphia, a joint venture between a local group and Enbridge [ENBR.UL], is expected to be the lowest in years, according to two sources familiar with that facility’s operations.

The terminal typically unloads about 27 unit trains a month, or roughly 65,000 barrels per day (bpd). But its main customer, the refining subsidiary of Delta Airlines Inc., has turned to oil from Gabon and Nigeria, the sources said.

Monroe Energy, the subsidiary, is cutting back "big time" on rail, one of the sources said, adding that the only Bakken still coming into the region is connected to term deals. FerrelGas Partners has an agreement to supply Monroe Energy with 65,000 bpd of crude oil at the Eddystone facility.

But Plains has no long-term contract with any customer for its Yorktown facility, multiple industry sources said. At the time of the purchase, they said, the risk seemed justified, as refiners like Monroe and Philadelphia Energy Solutions bought spot barrels through the facility.   Continued...

Unused oil tank cars are pictured on Western New York & Pennsylvania Railroad tracks outside Hinsdale, New York August 24, 2015. REUTERS/Lindsay DeDario